Rights of Rescission on Contract Entered Into With a Corporation That is Suspended
In California, an entity that has been suspended is disqualified from exercising any right, power or privilege as an entity during the time of the suspension. Therefore, the suspended entity lacks the legal ability to enter into a binding and enforceable contract with a third party. However, the contracts entered into during a time of suspension are not void; rather, the contracts are voidable at the option of the other party – but not at the option of the suspended entity. (Calif. Rev. & Tax Code §23304.1)
Any party that enters into a contract with a suspended entity should immediately determine whether or not that party wants to rescind the contract. The reason that an immediate decision is needed is because the right to rescind the contract is not permanent; the right to rescind may only exist during the time that the entity remains in a suspended status.
A suspended entity has the ability to revive the entity by filing an application with the California Secretary of State. In conjunction with the filing of the application, the suspended entity must (1) pay all delinquent taxes owed, including penalties, fees and interest, (2) file any delinquent tax returns, and (3) file a reviver request form. Additionally, at the option of the suspended entity, it may file an application to seek relief from the voidability of its contracts. If such an application is filed, so long as the contracts were not previously rescinded while the entity was suspended, the entity receives relief from the voidability of its contracts. Therefore, any party that wants to avoid a contract entered into with a suspended entity must move quickly to rescind the contract before the entity is revived and before the entity obtains relief from the voidability of its contracts
The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Reid & Hellyer, APC or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.